# Possible debate? Gimme reasons why GW\`s SS plan will/won't work. **URL:** \ **Category:** Great Debates\ **Created:** [February 9, 2005, 2:56pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195 "2005-02-09T14:56:51Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Uncommon\_Sense](https://avatars.discourse-cdn.com/v4/letter/u/f9ae1b/32.png) [@Uncommon\_Sense](https://boards.straightdope.com/u/Uncommon_Sense)\ **Post date:** [February 9, 2005, 2:56pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/1 "2005-02-09T14:56:51Z")
I’m quite ashamed of myself; I haven’t really followed the facts here. I don’t know why Bush`s Social Security ‘fix’ would be considered a poor option by some people, or why some consider it a good plan. The limited number of facts and numbers I have seen regarding the plan don’t really put me in either a pro or con group yet. I’m conservative by nature, so I may tend to lean towards that end of the spectrum, however, I need some more input. Instead of browsing through the older threads on this topic I thought I would start a new one that could include some of the newer debates, opinions, options, facts, numbers, etc. that may have crept into the arguements lately. So, offer me your stance and back it up with some facts, feeling free to counter those in the thread you disagree with. IOW, let’s have a freindly debate- shall we? I’ll kick in when I think I have enough info to construct a stable opinion or as I agree or disagree with certain points. ---
**Author:** ![SteveG1](https://avatars.discourse-cdn.com/v4/letter/s/bb73d2/32.png) [@SteveG1](https://boards.straightdope.com/u/SteveG1)\ **Post date:** [February 9, 2005, 4:53pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/2 "2005-02-09T16:53:44Z")
It’s a bad idea and is unnecessary. The plan (as I understand it) is to have the people pay into a private retirement account. However, aside from the rhetoric, there seem to be no concrete details. How it may finally work is, people will pay into these retirement accounts, to be managed by private firms. So, those who can afford it will have to pay money to somebody who may or may not have the skills to do the managing. Those who can not afford it will be out of luck. People will have to keep an eye on these accounts and know when to shift money around (if they have it), and will have to watch out for brokers who are churners - those who constantly sell buy sell buy to pad their own commissions. They will have to watch out (somehow) for those that are incompetent or are crooks. There will be no matching funds from anywhere (unlike many current retirement plans). There will be no guarantee that the account is safe - it could all go down the toilet due to mismanagement or “market corrections”. There will be no big lump sum payouts or windfalls - it wll be an annuity just like SS, except the annuity payments will be smaller. It is win win for the brokerage houses and corporations. It sounds like lose lose for the working stiffs and have nots. ---
**Author:** ![JohnBckWLD](https://avatars.discourse-cdn.com/v4/letter/j/d6d6ee/32.png) [@JohnBckWLD](https://boards.straightdope.com/u/JohnBckWLD)\ **Post date:** [February 9, 2005, 5:07pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/3 "2005-02-09T17:07:58Z")
It’s a **voluntary** plan (some would say scheme) that enables young workers to put a portion of their social security _contributions_ into a private fund that they own and can make limited investment decisions on. The left wing are accusing their opponents of demagoguing the program’s imminent collapse & skimmming huge sums off of an effective gov’t program to divert it to their buddies on Wall St. The right wing are accusing their opponents of ignoring the program’s imminent collapse and resisiting any change that makes people less dependant on the government. Frankly, I’d like to hear: The difference between the current social security system and an illegal ponzi scheme Where the ‘reform’ plan’s proponents are going to come up with the $3 trillion shortfall. You know, I’ve been working for the past 20 years and if given the option, I would voluntarily opt out of the system today. I’d let them keep every dime I’ve paid in over these past years (it’s been spent already anyway) and not claim a stake on any future benefits - **if** - they’d just leave me control the almost 7% I put in and the additional 7% my employer has to kick in from this point forward. ---
**Author:** ![BrotherCadfael](https://avatars.discourse-cdn.com/v4/letter/b/977dab/32.png) [@BrotherCadfael](https://boards.straightdope.com/u/BrotherCadfael)\ **Post date:** [February 9, 2005, 5:10pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/4 "2005-02-09T17:10:37Z")
Because it’s BUSH’S plan, of course! ---
**Author:** ![Uncommon\_Sense](https://avatars.discourse-cdn.com/v4/letter/u/f9ae1b/32.png) [@Uncommon\_Sense](https://boards.straightdope.com/u/Uncommon_Sense)\ **Post date:** [February 9, 2005, 5:30pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/5 "2005-02-09T17:30:02Z")
> [@BrotherCadfael](#): > > Because it’s BUSH’S plan, of course! Not very debate worthy of course. My limited understanding is this; \*You have the **option** of using the alternate method of investment. You don’t **have** to do anything different if you don’t want to. \*The system will go bankrupt if nothing is done around 2040. \*So, **something** must be done (?). \*This plan is better than doing nothing (?). \*You would be able to control only 4% of your deductions and divert them into a very limited selection of (mutual?) funds. \*The type of funds to be used are already in use and are an option for every governmnet employee currently working for the gov. \*You also have the option of selecting a guaranteed rate of return (bond/CD ?) at more than the going rate of just leaving the money where it is now (like 2% vs 1%). \*The plan will create an influx of money into the stock market, boosting the economy and creating larger accounts for retired individuals (in most cases). \*Any fund can be risky, but it sounds like they have selected some pretty stable funds. I don’t get the impression that this will be a free-for-all with the money. You will be limited to what you can do with it and how risky the investment is. Is it the consensus that you will have more money when you retire if you can divert some of it into a private account or less? Question for those opposed; Why should the public **not** be given a choice as to wheter or not they can divert some of their SS deductions into such a saving plan? ---
**Author:** ![scotandrsn](https://avatars.discourse-cdn.com/v4/letter/s/a4c791/32.png) [@scotandrsn](https://boards.straightdope.com/u/scotandrsn)\ **Post date:** [February 9, 2005, 5:30pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/6 "2005-02-09T17:30:14Z")
> [@JohnBckWLD](#): > > The difference between the current social security system and an illegal ponzi scheme. Well, I’ll just address this for starters. In a Ponzi scheme, someone asks you for money under cover of the idea that they are going to “invest” it, in other words, put it toward some potentially profit-making venture, a cut from the return on which you would be entitled to given that you put up part of the money that made it happen. However, instead of actually supporting such a venture, they simply gather more “investors”, paying you off with their money, and paying them off with money from later “investors”, until no more investors can be found, and the last ones lose their cash. Social Security is not meant to be an investment vehicle, no matter who tells you it is, including its current head who described it as such on CBS radio last week :rolleyes: . It is a means by which current workers contribute to the financial well-being of current retirees with a portion of their pay. The idea is that once you retire, money from then-current workers will be paid to you in turn. Roosevelt knew when he initially promoted this plan that it would keep going because if any pol tried to abolish it, there would be hell to pay from those who had already paid into the system. Bush is trying to sell the notion that SS is in fact an investment vehicle, and that it will stop paying returns, thus justifying the idea that your money could get better returns if “invested” elsewhere. ---
**Author:** ![eponymous](https://avatars.discourse-cdn.com/v4/letter/e/e0b2c6/32.png) [@eponymous](https://boards.straightdope.com/u/eponymous)\ **Post date:** [February 9, 2005, 5:35pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/7 "2005-02-09T17:35:42Z")
> [@JohnBckWLD](#): > > Frankly, I’d like to hear: > The difference between the current social security system and an illegal ponzi scheme Simple - social security is an insurance program. Or do you thing paying car insurance, for example, is a Ponzi scheme? ---
**Author:** ![Uncommon\_Sense](https://avatars.discourse-cdn.com/v4/letter/u/f9ae1b/32.png) [@Uncommon\_Sense](https://boards.straightdope.com/u/Uncommon_Sense)\ **Post date:** [February 9, 2005, 5:36pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/8 "2005-02-09T17:36:07Z")
**SteveG1** , I thought one of the highlights of the plan was that everyone **could** afford it. You already have the money deducted from your paycheck. What do you mean by **afford**. Isn’t there a max amount that can be deducted from anyone’s paycheck, and isn’t there already a max payout at retirement? For those already paying into the system, it doesn’t seem like affordability should even be a concern. ---
**Author:** ![eponymous](https://avatars.discourse-cdn.com/v4/letter/e/e0b2c6/32.png) [@eponymous](https://boards.straightdope.com/u/eponymous)\ **Post date:** [February 9, 2005, 5:39pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/9 "2005-02-09T17:39:32Z")
> [@Uncommon Sense](#): > > Not very debate worthy of course. > > My limited understanding is this; > \*You have the **option** of using the alternate method of investment. You don’t **have** to do anything different if you don’t want to. > \*The system will go bankrupt if nothing is done around 2040. > \*So, **something** must be done (?). > \*This plan is better than doing nothing (?). > \*You would be able to control only 4% of your deductions and divert them into a very limited selection of (mutual?) funds. > \*The type of funds to be used are already in use and are an option for every governmnet employee currently working for the gov. > \*You also have the option of selecting a guaranteed rate of return (bond/CD ?) at more than the going rate of just leaving the money where it is now (like 2% vs 1%). > \*The plan will create an influx of money into the stock market, boosting the economy and creating larger accounts for retired individuals (in most cases). > \*Any fund can be risky, but it sounds like they have selected some pretty stable funds. > > I don’t get the impression that this will be a free-for-all with the money. You will be limited to what you can do with it and how risky the investment is. > > Is it the consensus that you will have more money when you retire if you can divert some of it into a private account or less? > > Question for those opposed; > Why should the public **not** be given a choice as to wheter or not they can divert some of their SS deductions into such a saving plan? Here’s a question that should be asked by anyone regarding the plan being currently pushed by this administration: What happens if I lose my money? ---
**Author:** ![Uncommon\_Sense](https://avatars.discourse-cdn.com/v4/letter/u/f9ae1b/32.png) [@Uncommon\_Sense](https://boards.straightdope.com/u/Uncommon_Sense)\ **Post date:** [February 9, 2005, 5:39pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/10 "2005-02-09T17:39:48Z")
> [@eponymous](#): > > Simple - **social security is an insurance program**. Or do you thing paying car insurance, for example, is a Ponzi scheme? Please, let’s not argue semantics here. One could argue that an insurance plan should never go bankrupt… ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [February 9, 2005, 5:41pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/11 "2005-02-09T17:41:42Z")
**JBWLD:** \*Frankly, I’d like to hear: The difference between the current social security system and an illegal ponzi scheme \* Bags I the easy question! 🙂 Here you go: A pyramid scheme (which I think is what you’re talking about; a Ponzi scheme is actually a [variant](http://www.mlmstartup.com/articles/ponzi.htm) of the pyramid scheme that involves some productive asset) depends on the “pyramidal” structure of its participation: the promoters simply take money from later investors to pay earlier investors. The earlier investors may make out big for a while, but there’s simply no way that they can keep growing the total investor pool at a rate that will keep the scheme solvent; this would require unlimited **exponential** growth. The required number of participants in a typical pyramid scheme would **exceed the total US population** by about the twelfth investment round. The system is statistically **guaranteed** to collapse within a short time. Now, Social Security is very different from this. As currently funded, it **does** require there to be more contributors than recipients at any given time—contributions from today’s workers go to fund the benefits of today’s retirees. However, since the contributors include all workers (mostly 18–66), and the recipients are restricted to the segment of the population over 67, there always **are** more contributors than recipients. (For the sake of simplicity, I’m temporarily ignoring recipients of disability or survivor’s benefits, as well as those elderly people who don’t qualify for SS.) It would take some kind of demographic catastrophic event—say, an entire generation of women has no babies, or the average life expectancy suddenly shoots up to 115 years—to make the structure of Social Security collapse. It’s true that more minor demographic changes (such as the one we’re seeing now with the retirement of the large baby boom generation) can put stresses on Social Security, but it is certainly not headed for a breakdown the way a pyramid scheme is. ---
**Author:** ![eponymous](https://avatars.discourse-cdn.com/v4/letter/e/e0b2c6/32.png) [@eponymous](https://boards.straightdope.com/u/eponymous)\ **Post date:** [February 9, 2005, 5:46pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/12 "2005-02-09T17:46:10Z")
> [@Uncommon Sense](#): > > Please, let’s not argue semantics here. > > One could argue that an insurance plan should never go bankrupt… Not quite sure what you are getting at - I was simply trying to counter the notion that Social Security is somehow equivalent to a Ponzi scheme. It is not. It’s no more a Ponzi scheme than any other type of insurance program. Social Security is not an investment vehicle. ---
**Author:** ![Uncommon\_Sense](https://avatars.discourse-cdn.com/v4/letter/u/f9ae1b/32.png) [@Uncommon\_Sense](https://boards.straightdope.com/u/Uncommon_Sense)\ **Post date:** [February 9, 2005, 5:46pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/13 "2005-02-09T17:46:44Z")
> [@eponymous](#): > > Here’s a question that should be asked by anyone regarding the plan being currently pushed by this administration: What happens if I lose my money? You don’t have to opt for this plan if you’re concerned about losing money. What happens if I die before I retire? What happens if SS does go bankrupt? \*Will there still be a max payment at retiremtent for those who chose to divert? \*And if so, will the (possibly) extra money that is created in the SS system by diverting into private funds be allocated to keep the overall system alfoat? \*Or, how will this scheme keep the system from bankruptcy for those who chose not to divert? ---
**Author:** ![LouisB](https://avatars.discourse-cdn.com/v4/letter/l/dfb087/32.png) [@LouisB](https://boards.straightdope.com/u/LouisB)\ **Post date:** [February 9, 2005, 5:52pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/14 "2005-02-09T17:52:57Z")
> [@Uncommon Sense](#): > > Please, let’s not argue semantics here. > > One could argue that an insurance plan should never go bankrupt… Why not argue semantics? Bankrupt typically means there is no more money and that none of the existing obligations can be met. Social Security will not be bankrupt at a particular point in time; it might be necessary to reduce benefits to all in order to continue making payments to all, but no one will be left without some cushion. ---
**Author:** ![Uncommon\_Sense](https://avatars.discourse-cdn.com/v4/letter/u/f9ae1b/32.png) [@Uncommon\_Sense](https://boards.straightdope.com/u/Uncommon_Sense)\ **Post date:** [February 9, 2005, 5:54pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/15 "2005-02-09T17:54:27Z")
> [@eponymous](#): > > Social Security is not an investment vehicle. Not now it isn’t. Why can’t or why shouldn’t we adapt it to make it one? What happens when the retirees outnumber the contributing workers? Collapse? ---
**Author:** ![Taters](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/taters/32/2845_2.png) [@Taters](https://boards.straightdope.com/u/Taters)\ **Post date:** [February 9, 2005, 5:56pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/16 "2005-02-09T17:56:49Z")
At first blush it _appears_ that Bush’s plan will work like the Federal Employees Retirement plan (or more commonly Federal Employee Rip-Off Plan), but… I’m not so sure about a couple of things. First of all, SS is one the tiers of FERS, so are my SS benefits automatically going to be less just because I am under 55? Yes, the TSP portion of FERS is voluntary and this is what it appears the new SS plan would follow. However, the government doesn’t guarantee any losses in any of the funds you choose to invest in. So, if you invest in a fund (which by the way a “board” manages) and you lose big time, you’re screwed and out of the money…period. Your only hope is to have enough time remaining in service to recoup some of those losses. The last portion of FERS is a very small pension which contains next to nothing, will and has not grown much in the 22 years I have in govt service and will do next to nothing to help at retirement. So, I have the TSP and the SS portion of my retirement to count on and am not a happy camper when I hear that my SS benefit will be reduced. I didn’t have a choice in retirement plans when I went to work for the govt and to have them pull SS out from under me is beyond irritating (okay reduce my benefit, same damn thing). I honestly think that right now it’s all a lot of “sky is falling” hyperbole. “Facts” and “figures” that are being bandied about right now are suspect to me because they change depending on who is presenting them. As any data analyst knows, figures can be skewed any number of ways. So, at this juncture, I think this “plan” is a bunch of junk. Do I have the answers? No, I do not, but I certainly don’t think this is the answer. ---
**Author:** ![Zebra](https://avatars.discourse-cdn.com/v4/letter/z/c0e974/32.png) [@Zebra](https://boards.straightdope.com/u/Zebra)\ **Post date:** [February 9, 2005, 6:00pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/17 "2005-02-09T18:00:09Z")
It seems to me that the Bush plan will make SS fail sooner rather then later. The thing is as the babyboomers retire there are fewer people paying into SS. That means that fewer people will be working and buying stuff. That means that the economy will slow down. If the economy slows down then the ‘private investment accounts’ are not going to be worth enough for people to retire on them. For the PIA to work the economy must grow really strongly for the next 40 years. If the economy did this then SS would also be fine. The conditions that make the PIA a success would make SS a success. The conditions that forecast the failure of SS would also mean that the PIAs would fail. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 9, 2005, 6:01pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/18 "2005-02-09T18:01:18Z")
Bush already has admitted that the private investment feature will not help Social Security stay solvent in any way. His plan for doing that is to cut benefits by indexing to inflation instead of pay. So, the real issue is whether that is a better way of ensuring solvency rather than delaying the retirement age and increasing the cap on contributions. Calling Social Security a Ponzi scheme is a lie. No Ponzi scheme has ever lasted for 70 years and paid the promised benefits to millions of people. As **eponymous** said, it is an insurance policy. Just like insurance, some people get more than they pay in, some get less, but everyone gets the benefit of security. The only conman here is Bush. Waving the private investment package in his right hand, he’s trying to get people not to pay attention to the benefits cuts in his left. (And doing quite a good job of it, judging from this thread ) From my understanding, you only break even with the investments if you make inflation + 3%. After all, the government has to borrow the money to pay for this, or to pay for continuing benefits while you are putting your money into the fund. If you lose it you are SOL. If you live long enough that you run out of the money you are SOL. If you’re planning to die at 66 you get to give it to your heirs. Lucky you. One thing I don’t know about the plan - can you really opt out, or do you not do it by making your investment in T bills? If the latter, do you still lose benefits if your account goes dry? ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [February 9, 2005, 6:07pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/19 "2005-02-09T18:07:36Z")
**US:** \* I don’t know why Bush`s Social Security ‘fix’ would be considered a poor option by some people, or why some consider it a good plan.\* Well, AFAIK the Administration’s proposed privatization scheme has not yet been laid out in full detail for public scrutiny, but a recent White House [background briefing](http://www.nytimes.com/2005/02/03/politics/03social-txt.html?pagewanted=3) provided a number of facts: > [@](#): > > If you were born in 1949 or before, you would not be impacted by any of the changes envisioned by the President for Social Security. You would not have any changes to your benefits; you would also not be participating in personal accounts. > > For individuals who were born in 1950 or later, they would have the opportunity – the voluntary opportunity – to participate in personal accounts. If they wished, they could not choose a personal account and they could stay entirely within the current system. […] > > Specifically, the investment options that individuals would have would be somewhat similar to the thrift savings plan. In the thrift savings plan, individuals are given presently a choice of five funds. […] > > Participants would not be permitted, under the system, to have pre-retirement access to their personal accounts. […] > > Upon retirement, upon reaching retirement age, there would be some limitations on how they could withdraw money from the accounts. If an individual had a personal account balance, if they had chosen to take a personal account, they would not be able to withdraw money from their account to such a degree that by doing so they would move themselves below the poverty line. In other words, there would have to be a sufficient amount coming to them, in terms of a monthly inflation index benefit stream, from the traditional system and the annuitized portion of their personal account to be able to fund a poverty-level benefit. […] > > The size of the personal accounts would be limited to 4 percent of a worker’s wages from their payroll taxes. But there would be a cap placed on the accounts in the first year – contributions to the accounts of $1,000. Now, each year that cap thereafter would rise in increments of $100 on top of the natural wage growth that drives the growth in payroll taxes. […] > > [T]he personal accounts, as we would structure them, would not create a net new cost for the system. To the extent that people put money in these accounts and invest in these accounts, there would be a corresponding reduction in the government’s liabilities from the Social Security system that is equal in present value to the money placed in the personal accounts up front. So in a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of the Social Security and on the federal government. […] > > In the near-term, however, of course, there will be transition financing required. Our estimate of the total amount of transition financing for the accounts, according to the schedule that I’ve outlined before, is about $664 billion through the end of the budget window of 2015. If you assume that – debt service effects on top of that, that would be another $90 billion. […] > > \*n return for the opportunity to get the benefits from the personal account, the person foregoes a certain amount of benefits from the traditional system. > > Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual’s benefits would be zero if his personal account earned a 3 percent real rate of return. […] > > But at death, what happens to the annuity? Does it go to the federal government? > The annuity part would not come back, obviously, but the rest could be inherited. My emphasis. This is a fairly optimistic picture of the proposed scheme (for example, the $664 billion transition costs have been estimated by others at more like $2 trillion). But I think it makes a few things fairly clear: first, that the plan is **revenue-neutral** , meaning that it won’t actually have any effect on the projected Social Security funding shortfall. Second, the money that you put into your “personal” account is not really your money, at least not most of it. You have to take it out of the account after retirement in the form of a government annuity. And whatever you get from that annuity, up to your total investment at 3% interest, is offset by **cuts** in your regular Social Security benefits. An article by [Paul Krugman](http://www.nytimes.com/2005/02/04/opinion/4krugman.html) explained it succinctly: > [@](#): > > If you put part of your payroll taxes into a personal account, your future benefits will be reduced by an amount equivalent to the amount you would have had to repay if you had borrowed the money at a real interest rate of 3 percent. […] > > \*f you invested your private account in government bonds, you would face benefit cuts equal in value to your investment, so you would be no better off than under the current system. > > The only way to get ahead would be to invest in risky assets like stocks, and hope for higher yields. But if the investment went wrong and you earned less than 3 percent after inflation, your benefit cuts would leave you poorer than if you had never opened that private account. […] > > The government would have to borrow huge sums up front to create the personal accounts - $4.5 trillion in the first two decades - but it would supposedly make up for all that borrowing with offsetting cuts in account holders’ benefits many decades later. > > Color me skeptical: will retirees with private accounts that performed badly really be forced to repay their loans in full? Even if they are, private accounts will at best have a “net neutral effect” - that is, they will do nothing to improve Social Security’s finances. Mr. Bush says the system faces a crisis; what does he propose to do about it? > > The answer, presumably, is that his plan will also involve major benefit cuts over and above those associated with private accounts. And it’s true that you can improve Social Security’s finances with privatization, as long as you also slash benefits - just as you can kill a flock of sheep with witchcraft, provided you also feed them arsenic. ---
**Author:** ![19ForMe](https://avatars.discourse-cdn.com/v4/letter/1/439d5e/32.png) [@19ForMe](https://boards.straightdope.com/u/19ForMe)\ **Post date:** [February 9, 2005, 6:23pm UTC](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195/20 "2005-02-09T18:23:15Z")
> [@](#): > > From Zebra: > If the economy slows down then the ‘private investment accounts’ are not going to be worth enough for people to retire on them. For the PIA to work the economy must grow really strongly for the next 40 years. If the economy did this then SS would also be fine. > > The conditions that make the PIA a success would make SS a success. The conditions that forecast the failure of SS would also mean that the PIAs would fail. I’ve wondered about this. Clearly for any macro retirement system to work, there must be a robust economy to support all the people that have stopped working. Is it possible the PIA system will be better at this than the current system? In the PIA system, the government will effectively borrow at its low interest rate to finance the creation of this large pot of cash for private investment. The government will be funneling cheap cash into the capital markets for companies to use for their private business purposes. With cheap capital, companies are more likely to innovate but also more likely to squander. Will the innovation be enough to overcome the waste and the government subsidy to raise the overall productivity and support the increased retiree percentage? [Next page](https://boards.straightdope.com/t/possible-debate-gimme-reasons-why-gw-s-ss-plan-will-wont-work/289195.md?page=2)